1.Lee Company manufactures and sells widgets for $2.7 per unit. Its variable cos
ID: 2366406 • Letter: 1
Question
1.Lee Company manufactures and sells widgets for $2.7 per unit. Its variable cost per unit is $1.82. Lee's total fixed costs are $12,100. How many widgets must Lee Company sell to break even? (Round your answer to the next whole amount.)a13,938
b13,815
c13,750
d13,860
e14,310
2.Which one of the following statements is not true?
a. Total fixed costs remain the same regardless of volume.
b.Variable costs per unit remain the same regardless of the volume.
c.Fixed costs per unit increase as the volume decreases.
d.Total variable costs change with volume.
e.Total variable costs decrease as the volume increases.
3.A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:
a. Margin of safety line.
b.Contribution margin line.
c.Estimated line of cost behavior.
d.Standard cost line.
e.Break-even line.
4.During the past year a company had total fixed costs of $700,000. Its product sold for $93 per unit. Variable costs during this time equaled $45 per unit. Next year the company is anticipating a 10% increase in total fixed costs and a $3 per unit decrease in variable costs, but would like to maintain its current selling price per unit. How many units must the company sell next year to earn $1,000,000? (Round answer to complete units.)
a. 19,608
b.20,833
c.34,706
d.19,032
e.36,875
5.A product sells for $210 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 after tax income (assume a 30% tax rate), how many units must be sold?
a. 6,500
b.500
c.6,275
d.5,500
e.5,875
Explanation / Answer
1.Lee Company manufactures and sells widgets for $2.7 per unit. Its variable cost per unit is $1.82. Lee's total fixed costs are $12,100. How many widgets must Lee Company sell to break even? (Round your answer to the next whole amount.)
a13,938
b13,815
c13,750
d13,860
e14,310
Sales price less variable costs equal contribution margin per unit: 2.70 – 1.82 = $0.88
Break even point in unit = Fixed costs/Contribution Margin per unit = 13750 units
Answer: c, 13750
2.Which one of the following statements is not true?
a. Total fixed costs remain the same regardless of volume.
b.Variable costs per unit remain the same regardless of the volume.
c.Fixed costs per unit increase as the volume decreases.
d.Total variable costs change with volume.
e.Total variable costs decrease as the volume increases.
Answer: e. Because total variable costs will increase as the volume increases.
3.A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:
a. Margin of safety line.
b.Contribution margin line.
c.Estimated line of cost behavior.
d.Standard cost line.
e.Break-even line.
Answer: c, estimated line of cost behavior.
4.During the past year a company had total fixed costs of $700,000. Its product sold for $93 per unit. Variable costs during this time equaled $45 per unit. Next year the company is anticipating a 10% increase in total fixed costs and a $3 per unit decrease in variable costs, but would like to maintain its current selling price per unit. How many units must the company sell next year to earn $1,000,000? (Round answer to complete units.)
a. 19,608
b.20,833
c.34,706
d.19,032
e.36,875
If fixed costs are currently 700,000, next year they will be $770,000, and variable costs will be $42 per unit.
Contribution margin per unit will be $93 – 42 = $51.
Quantity of units requird to be sold = (fixed costs + target operating income)/contribution magin per unit: (770,000 + 1,000,000)/51 = 34,706 rounded up.
Answer: c, 34,706
5.A product sells for $210 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 after tax income (assume a 30% tax rate), how many units must be sold?
a. 6,500
b.500
c.6,275
d.5,500
e.5,875
Contriution margin = 210 – 130 = 80
Before tax income = 35,000/(1 – 30%) = 35,000/(1 - .3) = 35,000/.7 = 50,000
Quantity requird to be sold = (420,000 + 50,000)/80 = 5875 units
Answer: e, 5875 units
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.